Yahoo Finance ARKO Corp (ARKO) Q1 2024 Earnings Call Transcript Highlights: Navigating Challenges with ...
Adjusted EBITDA: $36.6 million for Q1 2024, above the midpoint of the range provided previously.
Same-store merchandise sales: Declined year-over-year but increased 4.6% on a two-year stack, excluding cigarettes.
Merchandise margin rate: Significant expansion, offsetting the decline in same-store merchandise sales.
Retail segment operating income: $33.8 million for Q1 2024, down from $41.6 million year-over-year.
Total retail merchandise sales: Up approximately 3.6% year-over-year.
Merchandise contribution: Increased by 9.7% year-over-year.
Retail segment fuel gallons: Increased by 2.6% year-over-year.
Fuel contribution: Up 5.5% compared to the year-ago period.
Wholesale segment operating income: $7 million for Q1 2024, down from $7.6 million year-over-year.
Fleet segment operating income: $8 million for Q1 2024, compared to $8.4 million year-over-year.
Net loss: $0.6 million for Q1 2024, improved from a net loss of $2.5 million year-over-year.
Total capital expenditures: $29.2 million for Q1 2024.
Q2 2024 Adjusted EBITDA guidance: Expected to be between $70 million and $77 million.
Full year 2024 Adjusted EBITDA guidance: Maintained at $250 million to $290 million.
Release Date: May 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
ARKO Corp reported an adjusted EBITDA of $36.6 million for Q1 2024, which was above the midpoint of the guidance range provided in the previous call.
Despite a decline in same-store merchandise sales, ARKO Corp achieved a 4.6% increase on a two-year stack basis, excluding cigarettes.
The company saw significant merchandise margin rate expansion, which helped offset the decline in same-store merchandise sales, leading to modest growth in merchandise contribution over the prior year.
ARKO Corp has been actively enhancing its merchandise mix and expanding its food offerings, which are expected to drive traffic and improve profitability.
The company continues to leverage its multi-segment operating model and has made progress in converting retail stores to wholesale, reducing operating expenses and corporate G&A.
Negative Points
Same-store merchandise sales declined compared to the strong prior year quarter, indicating potential challenges in consumer spending patterns.
ARKO Corp experienced a decrease in fuel contribution and regulatory statewide elimination of Virginia gaming income, which negatively impacted financial performance.
Same-store operating expenses were up 3.3% for the quarter, driven by higher hourly wage rates, accelerated repair and maintenance, and elevated workers' comp claims.
The company reported a net loss of $0.6 million for the quarter, compared to a net loss of $2.5 million in the year-ago period, showing continued financial strain.
Same-store fuel gallon demand was down 6.7% for the quarter, which could indicate a decrease in customer traffic or shifts in consumer behavior towards fuel purchases.
Q & A Highlights
Q: Can you discuss the merchandise comps of negative 3% excluding cigarettes and what you're observing in customer behavior? A: Arie Kotler, CEO, noted that macroeconomic challenges and inflation are impacting customer spending, leading to trade-downs and smaller basket sizes. Despite a decline in cigarette sales, ARKO has managed to increase margins by focusing on high-margin items, leveraging promotions like the $4.99 pizza to attract customers.
Q: How are you addressing the guidance for Q2, considering the EBITDA came in below expectations? A: Robert Giammatteo, CFO, explained that the guidance reflects a decrease in fuel gallons and a slight decrease in fuel margin per gallon compared to the previous year. He emphasized ongoing efforts to enhance merchandise margin rates and promotional activities to boost sales.
Q: What trends are you seeing in gas margin guidance for Q2, and why maintain the $0.36 to $0.40 range for the year? A: Giammatteo mentioned that while recent trends in rack to retail margins are encouraging, they are up against strong quarters from the previous year. The company expects a slight decrease in fuel margin per gallon but remains focused on capturing additional margin and maintaining competitiveness.
Q: Can you provide more details on the record inside margins achieved in Q1? A: Kotler highlighted that the increase in inside margins is driven by a shift towards high-margin items like pizza, which is part of a broader strategy to enhance food service offerings. This shift helps offset declines in cigarette sales and contributes to overall margin growth.
Q: What is the strategy behind converting some retail sites into dealer sites? A: Kotler explained that converting underperforming retail sites to dealer sites helps reduce operating expenses and G&A costs, thereby increasing profitability. This strategy allows ARKO to focus on its most profitable stores and leverage its wholesale platform more effectively.
Q: How does the zone pricing strategy impact top line and gross margin? A: Giammatteo stated that detailed customer market research is guiding their pricing strategy to better match customer segments with pricing levels. This approach aims to resonate more effectively with cost-sensitive customers, especially in an inflationary environment. More details will be shared during the Investor Day.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
This article first appeared on GuruFocus.
